Do Houses Make a Good Investment?
I read Chris Dillow’s Stumbling and Mumbling blog regularly. An interesting recent piece on house prices has a chart showing the ratio of real house prices to real GDP. His argument is that over the long-run house prices have risen more or less in line with GDP, so even though we believe house prices are a good investment, they haven’t been in the past with a real return since 1955 of 2.7%.
I would qualify that argument a little because the chart shows if you were buying a house in 1996 or 1997, when house prices had bottomed in relation to GDP, things would probably have turned out well for you (they did for my neighbour). The graph also suggests that house prices aren’t as cheap as they have been in last market bottoms, as do other figures such as house prices to average earnings.
